Morgan Stanley IM: Insights Blog - Five Findings from COP27 with Vikram Raju

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Last week, Morgan Stanley Investment Management’s Head of Climate Investing, Vikram Raju, joined industry leaders at the 27^th Conference of the Parties of the United Nations Framework Convention on Climate Change (“UNFCC COP27”) in Sharm El-Sheik, Egypt. The two-week long conference hosted global leaders and focused on the shared goal of addressing climate change globally. In this insights blog, Vikram Raju discusses five key findings from his time at COP27.

1. Convening Power: The UNFCCC COP is now a must-attend meeting for international political leaders. Tiny Sharm El Sheikh airport, which typically caters for holiday charter planes, was host to government aircrafts from around the world. COP now combines the convening power of the United Nations general assembly, the meetings of the International Monetary Fund ("IMF") and the World Economic Forum ("WEF"). Non-attendance is highly scrutinized and there have been high profile instances of leaders' feeling the need to change their original decisions and show up. Why is this important? Because it draws the collective attention of the world for two weeks a year on the climate crisis and a collective attempt to mitigate it. It’s also very important that these discussions happen while non-government organizations ("NGOs"), businesses, journalists, scientists and economists congregate in situ.

2. A Changed World: COP26 in Glasgow took place in a world with relative economic and political calm. There was a semi celebratory air in Scotland as important climate targets were reinforced and enhanced. COP27 is happening in background of global macroeconomic pressure and the war in Ukraine. Energy security concerns have caused some COP26 commitments to be slowed down or rolled back. Re-affirmation of the 1.5 degree goal becomes crucial even as many are concerned that we’re already heading towards an "overshoot" scenario.

3. Loss and Damage: The key area of focus - unresolved as we speak - is compensation due to developing countries for the negative economic consequences of climate change: extreme weather, damaged infrastructure, failed harvests, even the potential relocation from islands and coastal areas that are no longer inhabitable. Discussions are still ongoing but hopes of a globally palatable outcome are slim. What is encouraging though is that bilateral efforts have moved ahead with many countries agreeing to the creation of a compensation fund for impacted nations.

4. Outside the Blue Zone: What happens outside the room is almost as important as the formal COP negotiations. In Sharm, events were spread out across the city nestled between the Sinai mountains and the Red Sea. As private equity investors in climate solutions, it is very important for us to get multiple perspectives on the climate issues: climate negotiators, indigenous tribal leaders, climate scientists, business leaders, politicians, catastrophe insurance underwriters, NGOs, journalists, technologists, student activists, multilateral bank economists. At COP27, you will find many of them at the same dinner table. This is the ultimate success of COP, as a melting pot of the international climate community.

5. Climate Solutions: We engaged with several clever new technologies from textiles using recycled materials to adaptive agriculture in harsher conditions. While we are not early-stage investors and several of these companies are, an important part of our sourcing is our connectivity with the early-stage eco-system, so we can play an important role when these companies emerge to the growth stage and may need our help to scale and deliver financial returns and climate impact. At least some of the conversations in Egypt will be viable investment candidates by the time COP30 is held - maybe in Brazil.

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